Tony’s Tax Tips

Year End Charitable Giving 

I have maintained for years that your best and least expensive means of saving meaningful tax dollars is by contributing property to a qualifying charitable organization.

RIA tells us that In IR-2015-134, the IRS has reminded taxpayers making year-end charitable contributions to keep in mind that donated clothing and household items must be in good or better used condition; monetary donations must be substantiated by a bank record or written statement; donations worth $250 or more must be substantiated by a written acknowledgement that includes, among other things, a description of the items contributed; and special rules apply to donations of cars, boats and airplanes. Furthermore, only donations to qualified and bona-fide organizations are tax-deductible.
If you have any questions about making year-end charitable contributions, do not hesitate to contact us.

Tony’s Tax Tips

The Advantages of Using a Licensed Professional for your Tax Matters

In a recent news release, the IRS reminds us of the difficulty involved in working with an unlicensed tax preparer, should that preparer need to represent you before the IRS.

By way of explanation, in June of 2014, IRS announced a voluntary education program, the Annual Filing Season Program (AFSP), for unenrolled return preparers and others that would go into effect for the upcoming filing season. Completion of the program allows these preparers very limited rights to represent taxpayers. However, these rights are not broad in scope, nor are they allowed at every level of IRS jurisdiction.

Conversely, IRS also notes in the news release that there are no changes to the representation rules and powers for EAs, CPAs, and attorneys. These tax professionals continue to have unlimited practice rights and can represent any taxpayer before any IRS office, including collection and appeals, regardless of whether they prepared the tax return in question. Choosing such a professional usually puts a taxpayer at a great advantage rather than the choice of someone who works seasonally, and is unenrolled.

Tony’s Tax Tips

Buying a Home (The Real Story)

Usually, many people consider if the purchase of a home is a good idea.

The Housing collapse of 2008-2009 is still being felt by many communities today, as a glut of homes remain available for sale at seemingly bargain prices. Further, the spotty real estate market has driven up the cost of rents. Most troubling for the market is the scarcity of younger potential “entry-level” buyers who are either beset by excessive personal debt, or do not want the financial and time commitments to home ownership. Losing this lower rung of the market has created a reverse domino effect to the same.

Many times, younger buyers are presented with a seemingly simple analysis reflecting that one could “own” property more inexpensively compared to by paying rent. The added tax benefit of mortgage interest and property taxes are factored in. However what is never discussed are the costs of maintenance, upkeep and mechanicals, trash removal, insurance, mortgage insurance, and (gulp!), capital improvements such as siding and fencing.  Plus, there are “time vs. money” decisions as to who will mow the lawn and shovel the snow? All of that needs to be considered.

Two axioms also come into play with respect to home ownership. One is the “law of price appreciation,” which was almost a given years ago. Many buyers chased one piece of property, thus driving sale prices up. Now, with fewer buyers in the marketplace, the “buy window theory of life” comes in to play. This is a time-honored rule telling us that the value of a given item is determined by what it can be purchased for on that particular day i.e., its value at the “buy window.” If one cannot sell a given house in a 24-hour period for any given price, guess what that object is worth?

As you can see, buying real property is a complex decision involving many factors. If you have any questions about the same, feel free to contact us.

Tony’s Tax Tips

Starting Your Own Business

In my humble opinion, I don’t think anyone knows for sure as to how the economy will perform going into 2016. There are many prognostications, and I am always offering some of my own. Regardless if it’s the greatest multi-national financial firm wheeling out their top economists, or the smallest mom and pop business owner speaking about the price of flour, it seems to me that everyone making these predictions are wrong as many times as they are right.

But if the preceding paragraph deals with uncertainty regarding the economy, the question then becomes, what IS certain? Certainty can only be defined by observation of currently existing economic trends. A very casual observation of today’s world tells us that 1) corporate full-time employment is on the decline, 2) the mobile (and/or sharing) economy is on the increase, and 3) more people than ever are working as independent contractors or free-lance employees than ever before.

Many people separated from corporate employment immediately contemplate working in their own business.  As this is a major life step, this decision should not be made hurriedly or without thought. However, even if one “turns the corner” unto entrepreneurship, there are a number of things to be considered, such as:

  • Working space
  • Recordkeeping
  • Tax compliance
  • Tax credits
  • Insurance
  • Business organization
  • Available grants
  • Banking and loans
  • Asset and supply purchases
  • Advertising and marketing
  • Retirement planning

And, the list goes on.

If you are considering the start-up of a business (or, if you are currently running one), we believe that speaking to us will be a profitable and valuable experience for you.

Tony’s Tax Tips

Saving for Retirement and Saving on Income Taxes

The legendary writer and playwright George Bernard Shaw had a saying. “It is a shame youth is wasted on the young.” How true a statement that is! Young people never believe that they will ever want to retire or get old.

But not only does aging happen to the best of us, it happens to all of us.

We hear many commercials talking about where one can have a given object for just a few dollars a day. This morning, I heard that for the cost of my daily latte, I could lease a new car. However, what if I were to tell you that for the cost of that same latte, you won’t run out of money when you get older if you fund a retirement plan account? Guess what… I am sure the latte tastes better.

I proved this myself last year when I put in a jazzy coffee maker in our office. I bought all of the coffee pods and spring water, and ran some math showing my staff that if they stopped going to the coffee store, they would have several thousand dollars more in tax-free spending money. I observed that in most cases, the coffee shop coffee tended to taste better judging by the amount of coffee pods I was buying each week.

But I digress. We’re talking about saving for retirement. And in many cases, such saving creates a tax savings that can be used for other needed purposes.

If you have any questions about retirement plans and using them to your best advantage, please do not hesitate to contact us.

Tony’s Tax Tips

Contributions of Used Property

During the season (and the year), I’ll often be asked as to what can be done to save income taxes.  To this end, the simplest way to save on income taxes for little to no cost for those who itemize is to donate quality items in good condition to public charitable organizations, who can either use them or sell them for fundraising  purposes.

Under existing IRS rules, a deduction for the fair market value of a given personal object to a qualifying charitable organization is allowed, provided the object is in good and useable condition. For example, if I make a donation of my used living-room furniture to a charitable thrift store and the value of the property is $1,000, I can deduct the entire contribution. If I am in a 30% income tax bracket across the board, this donation places $300 in my pocket My only cost is getting rid of a bunch of things I can no longer use.

Certain rules do apply with items of larger value or of contributions of business property, so please do not hesitate to contact us with questions, should you have any.

Tony’s Tax Tips

Cheap Can Be Expensive

There are many (so called) “cheap” options available for tax preparation. These options might be in the form of downloadable or “boxed” software, volunteer tax assistance (VITA), or even community group assistance.

All of these options are available at little or no cost. However, there may be severe difficulties with each option.

  • With consumer software, many details and vital determinations are often left out of the programming, costing clients hundreds (if not, thousands) of dollars. Using this product is the equivalent of buying clothing by mail order, it might look like it belongs on you, but it often does not fit well.
  • With volunteer assistance, the well-meaning souls sitting across the table often have little to no training in tax matters, often giving rise to the probability of mistakes, penalty assessments and error notices arriving from the taxing authorities.
  • With community assistance, the same difficulties apply as with volunteers, except that these good hearted souls often have no training at all.

An income tax return is a legal obligation between a taxpayer and the government with a liability period of at least three years. The question one needs to ask here is, what is the value of saving a few bucks if it greatly increases the possibility of problems, costs, and troubles?

Even though it may cost a little bit more, I wholeheartedly believe that a person is much better served by establishing a relationship with a federally-or state licensed tax professional in good standing who practices tax for a living, and is legally bound to represent you and be accountable to you for the entire legal liability period. Such a person can identify issues that you cannot see and provide suggestions for items that you may not think about.

The few more dollars you may spend will more than pay for itself in added savings, peace of mind, and protection.